Building Size Matters in Amarillo Industrial Market

The 316,000-square-foot facility of Ben E. Keith, one of the largest food and alcoholic beverage distributors in the country, represents the close tie between agriculture and industrial real estate in Amarillo. The company moved into this expandable facility in 2006.

Amarillo’s industrial market is truly a tale of two sectors, as some form of that expression goes, and the key number is 50,000 square feet.

The occupancy rate for industrial properties in the sub-50,000-square-foot range in Amarillo remains very high, with few properties of this size sitting on the market for extended amounts of time.

With such high occupancy rates, several new developments have recently sprung up. Those with both large footprints and divisible floor plans to meet the needs of smaller tenants tend to be most successful in terms of leasing velocity.

Ben Whittenburg, Gaut Whittenburg Emerson CRE

In addition, developers of this product type are seeing its success and gravitating to Amarillo with spec projects. This sector of the industrial market should remain profitable for developers unless construction costs increase at a greater pace than rents can justify.

The lull lies in existing properties that measure more than 50,000 square feet. In a smaller market like Amarillo, properties of this size sitting empty can be an ominous sign, and a few in particular have really come to symbolize concerns about sales of assets of this magnitude.

While Anderson Merchandisers’ demise was due to a worldwide technology concentration, having unoccupied buildings of this size can have a negative effect on the health, and just as importantly, the outside perception of the market. But the continued stabilization of the oil and gas markets, as well as a little moisture in the ground, should help turn things around and help get these properties off the market.

Commodities Drive Market

Industrial development and absorption in Amarillo are both tied to certain commodities, predominantly oil and agricultural products. When crops were blessed with rain and oil was trading above $85 per barrel, those large-footprint properties scarcely had any available space.

When droughts became more prevalent and international oil supplies reached unprecedented levels, commodities-based businesses tightened their bootstraps. They became mindful of the bookkeeping challenges of leasing large spaces at these big facilities, especially basic overhead costs.

Yet Amarillo — and its 2.6 unemployment rate, which ranks second in the state to Midland — still manages to attract large commodities users. Overall industrial occupancy is in the mid-90th percentile despite the aforementioned vacancies at several larger properties.

The northeast corridor of the city continues to be home to these larger industrial users. These firms include Fort Worth-based Bell Helicopter, which occupies approximately 1.2 million square feet; Arkansas-based Tyson Foods, which occupies roughly 900,000 square feet; and Ben E. Keith, one of the nation’s largest food and alcoholic beverage suppliers and which registers a footprint of about 316,000 square feet.

Economic development efforts in Amarillo are closely aligned with these industries. While still focusing on wind energy companies and projects, economic development efforts have also targeted firms in the technology, agriculture and livestock, aviation and aerospace industries.

In addition, the Amarillo Economic Development Corp. has pledged as much as $69 million to establish the Texas Tech School of Veterinary Medicine. This institution will bring new money into the city and improve the overall economy. But it remains uncertain how big of a residual impact this move will have on the industrial market.

Downtown Do-Over

The supply of quality industrial space in Amarillo has also benefitted recently from adaptive reuse projects involving dilapidated warehouses in the downtown area. Not all of these facilities have remained industrial assets. Some have become bars and restaurants; some have become apartments and some have become office buildings.

Repurposing much of this old industrial product has brought more vibrancy to downtown Amarillo, not to mention more jobs. With more culture, moxie, available positions and housing in the downtown area, the city’s population of young people is bound to grow. While the long-term success of such redevelopments has yet to be determined, there is no doubt they are changing the face of downtown.

In addition, the redevelopment projects have ensured that most of Amarillo’s industrial supply is newer, serviceable product with the features that users want.

Downtown property owners looking to develop warehouses into alternative uses have to offer amenities to attract both the young and old alike. Attraction and retention are both immensely important to making these transformations a success. While an older demographic prefers ease of access and convenient parking, younger adults look at a development’s walkability and proximity to gyms, bars and restaurants.

Closing Thoughts

The national economy continues to thrive, Amarillo is no different. The diversified nature of our area has helped to both sustain and fuel continued growth. We continue to separate ourselves from the previous economic downturn, but with measured confidence.

Like many Texas cities, Amarillo strives to be a business-friendly environment and works to provide incentives and a prosperous work environment to attract both companies large and small. But it is not without flaws that we continue to flourish. The mediocre commodity markets and sudden existence of large industrial facilities sitting vacant contribute to our cautious optimism.

— By Ben Whittenburg, owner/partner, Gaut Whittenburg Emerson Commercial Real Estate. This article first appeared in the July 2018 issue of Texas Real Estate Business magazine.